ATTACHMENT A

THE PROPOSED DECISION Attachment A

BOARD OF ADMINISTRATION PUBLIC EMPLOYEES' RETIREMENT SYSTEM STATE OF

In the Matter of the Calculation of the Final Agency Case No. 2011-0789 Compensation of:

PIER'ANGELA SPACCIA, OAH No. 2012020198

Applicant/Respondent, and

CITY OF BELL,

Public Entity/Respondent.

PROPOSED DECISION

James Ahler, Administrative Law Judge, Office of Administrative Hearings, State ofCalifornia, heard this matter on August 27,28 and 29,2012, and on December 27,2012, in Orange, California.

Wesley E. Kennedy, Senior Staff Counsel, represented Petitioner Marion Montez, Assistant Division Chief, Customer Account Services Division, California Public Employees' Retirement System, State ofCalifornia.

Harland Braun, Attorney at Law, represented Applicant/Respondent Pier'Angela Spaccia, who was present throughoutthe administrative proceeding.

Stephen R. Onstot, Attorney at Law, represented Public Entity/Respondent City ofBell.

The matter was submitted on January 28,2013.

SUMMARY

A preponderance of the evidence established that the earnings received by Pier'Angela Spaccia under her July 1,2003, employmentagreement with the City of , CALIFORNIA PUBLIC EMPLOYEES RETIREMENT SYSTEM Bell should be used to calculate her service retirement allowance and that Ms. Spaccia is entitled to receive five years air time purchased on her behalfby the City of Bell.

FACTUAL FINDINGS

Stipulated Matters

1. The California Public Employees Retirement System (CalPERS) manages pension and health benefits for California public employees, retirees and their families. Retirement benefits are provided under defined benefit plans that are funded by member and employee contributions and by interest and earnings on those contributions.

2. A service retirement allowance is calculated by using a formula that includes the member's years ofservice, age at retirement, and final compensation. "Final compensation" is defined as the highest average consecutive 12 or 36 months ofcovered service. "Compensation earnable" is defined as "payrate" and "special compensation." In computing a member's service retirement allowance, CalPERS' staff may review the salary reported by an employer to ensure that only those items allowedunder the Public Employee Retirement Law (PERL) areincluded in a member's "final compensation."

3. The City of Bell was and is a public agency that contracted with CalPERS for the provision ofbenefits to eligible employees under the PERL.

4. Pier'Angela Spacciawas employed by the City of Bell from July 1, 2003, until October 1,2010, and by other participating public agencies before her employment with the City ofBell.

5. On October 1,2010, Ms. Spaccia submitted an application to CalPERS for a service retirement pending determination ofher application for an industrial disability retirement. Ms. Spaccia requestedthat CalPERS use the highest average compensation she received from the City of Bell as her "final compensation."

6. CalPERS reviewed the compensation the City of Bell reported it had paidto Ms. Spaccia and concluded that the reported payrate was not "compensation earnable" and should not be used to calculate Ms. Spaccia's retirement allowance because Ms. Spaccia was not the paid pursuant to a publically available pay schedule. CalPERS determined Ms. Spaccia's retirement allowance should be based on "compensation earnable"that was paid to herby other (non-City of Bell) public agencies.

7. By letter dated December 2,2010, Ms. Spaccia was notified of CalPERS' determination and her right to appeal. CalPERS laternotified Ms. Spaccia

2 that the City of Bell's direct purchase of five yearsof additional, retirement service ("air time") for her was improper and had to be rescinded.

8. By letter dated December 27,2010, Ms. Spaccia timely appealed from CalPERS's determinations and requested an administrative hearing.

9. Petitioner Marion Montez, Assistant Division Chief, Customer Account Services Division, California Public Employees' Retirement System, signed the Statement of Issues giving rise to this administrative proceeding.

Ms. Spaccia's Employment History BeforeJuly 2003

10. In January 1980, Ms. Spacciabegan employment with the City of Ventura. She was employed there for approximately 11 years. She received several promotions, ultimately serving as Director ofManagement Services. Ms. Spaccia terminated her employment with the City ofVentura in 1990 to work for the County Transportation Commission (LACTC).

Ms. Spaccia began employment with the LACTC in 1990. During her employment, LACTC merged with the Southern California Rapid Transit District (SCRTD). Ms. Spaccia was employed by SCRTD through 1994 and became Director of Management Services.

Ms. Spaccia married in 1994 and moved to Idaho. While living in Idaho, she was employed as an Associate Director ofthe YWCA and then as Finance Director for Kootenai County. Ms. Spaccia and her son returned to California in 2000.

In 2000, Ms. Spaccia was employed briefly by the Old Globe Theater in , and was then employed by the North County Transit District.

In 2001, Ms. Spaccia returned to Ventura County where she was employed by the County ofVentura as an Assistant to the Chief Executive Officer. When a new administration was elected, Ms. Spaccia obtained employment with Moreland and Associates. It was through her employment with Moreland and Associates that Ms. Spaccia became associated with the City of Bell.

Ms. Spaccia's employment with some ofthe California public entities resulted in member and employer contributions to CalPERS and Ms. Spaccia's credited service with CalPERS for retirement purposes.

The City ofBell

11. The City of Bell is an incorporated suburb located several miles south of the City ofLos Angeles. The City of Bell envelops about two anda half square miles within its city limits. Its population is about35,000. In 2005, the City ofBell became a charter city, which exempted the City of Bell from a state law that limits the pay ofindividuals who serve as city council members.

Ms. Spaccia's Employment with the City ofBell

12. In 2003, the City of Bell offered Ms. Spaccia full time employment to serve as the assistant to Chief Administrative Officer Robert Rizzo (CAO Rizzo) on a permanentbasis. The City of Bell employed Ms. Spaccia from July 1,2003, until October 1,2010.

13. Ms. Spaccia was first employed under an Agreement for Employment dated July 1,2003.

The original agreement for employment stated that the City of Bell was a general-lawcity, that the City of Bell desired to employ Ms. Spaccia as the assistant to the Chief Administrative Officer, and that the parties wanted to provide various procedures,benefits and requirements relating to Ms. Spaccia's employment. The agreement stated that Ms. Spaccia's duties were "as set forth in the City ofBell Municipal Code and other applicable laws and regulations, and [that she was] to performsuch other proper duties as assigned by the Chief Administrative Office (CAO) of the City." Ms. Spaccia's basic salary was "$3,935.00 per pay period"1 and the salary could "be adjusted by the City Council, in its sole discretion, on or before each anniversary date ofthis Agreement."

14. An agenda for the City Council meeting occurring on June 30,2003, was produced. Item IV - the Consent Calendar - stated that action would be taken on several items that were routine and non-controversial without discussion by the City Council. Resolution 2003-29, a resolution identifying an employee compensation plan, was noticed for that City Council meeting, as was Resolution 2003-31, a resolution designating certain full time city officers and employees as being unrepresented.

Ms. Spaccia's original agreement for employment was placed on the City Council's agenda and was made availableto the public as part ofthe agenda packet for the June 30,2003, City Council meeting. The City Council formally approvedthe agreement at that meeting.

15. Duringher employment with the City of Bell, Ms. Spaccia provided oversight and mentoring for Lourdes Garcia,(then) the City of Bell's Director of Administrative Services, organized the annual low rider car show, planned a

1 The term "pay period" was not defined inthe agreement, but common usagewithin the City of Bell established thata "pay period"was every two weeks. Using this agreement as a base, Ms. Spaccia was earning$8,525.83 per month, or $102,310 per yearunder the original employment agreement. skateboard park, and performed other duties assigned by CAO Rizzo. Ms. Spaccia did not have a direct supervisor, reported directly to CAO Rizzo, and often worked from her home. Ms. Spaccia, an unrepresented miscellaneous city employee, had no formal job description, was not a department head, did not supervise others, and had no budgetary responsibilities. While she was always employed at a regular salary, determining Ms. Spaccia's actual work related group or class within the City ofBell presented classification problems. Ms. Spaccia appears to be properly classified with other City of Bell unrepresented management personnel.

Other EmploymentDocuments

16. A number ofdocuments relating to Ms. Spaccia's employment with the City ofBell were produced in addition to the Agreement for Employment dated July 1,2003. These documents were never placed on a City Council agenda and were not made available to the public before any hearing. These documents are summarized as follows:

A. Addendum Number One to Agreement for Employment dated July 1.2004, increased Ms. Spaccia's basic salary by $1,065 per pay period subject to the condition that the City experienced a positive cash position. The addendum was signed by George Cole, (then) Mayor. No specific duties were specified.

B. Addendum Number Two to Agreement for Employment dated July 1.2005, modified Ms. Spaccia's basic salary as follows: (a) $7,115.40 per pay period effective July 1,2005; (b) $7,884.65 per pay period effective July 1,2006; (c) $8,846.16 per pay period effective July 1,2007; (d) $9,615.40 per pay period effective July 1, 2008. Each salary increase was contingent upon the City having a positive cash position. The addendum was signed by George Mirabal, (then) Mayor. No specific duties were specified.

C. Addendum Number Three to Agreement for Employment dated July 1.2006, modified Ms. Spaccia's agreement ofemployment by including an additional $200 per pay period and included the funding ofa Governmental Money Purchase Plan(401a). CAO Rizzo signed the addendum on behalf of the City of Bell. No specific duties were specified.

D. Agreement for Employment dated June 30.2008. stated that the City of Bell wished to employ Ms. Spaccia as Assistant Chief Administrative Officer "to have and exercise all ofthe powers, duties and responsibilities as Assistant Chief Administrative Officer as set forth in the City's Municipal Code and other applicable laws and regulations, and to perform such other proper duties as assigned by the Chief Administrative Officer (CAO) ofthe City." The agreement provided that Ms. Spaccia's basic salary was set in the agreement dated July 1,2005, and included "payment of employee's portion of FICA and Medicare sums as set by the Social Security Administration," together with a 20 percent salary increase, with a 12 percent annual increase thereafter, beginning July 1,2009, and "Funding ofthe Governmental Money Purchase Plan will continue as per the existing Agreement." CAO Rizzo signed the agreement on behalfof the City of Bell.

17. At all times relevant to this matter, Section 519 ofthe City ofBell's Charterauthorized the City Council to delegate contracting authority to the Chief Administrative Officer for "the acquisition ofequipment, materials, supplies, labor, services or other items included within the budget approved by the City Council" by resolution or ordinance. Absent such a delegation, the City Council was required to approve such contracts.

18. In 2006, the City Council adopted Resolution 2006-42, which provided CAO Rizzo with authority to contract for "labor and services" included within a City Council-approved budget, but the resolution, by its own terms, did not apply to "any written contract for services rendered by any person in the employ ofthe City at a regular salary."

The City ofBellScandal

19. In July 2010, the Los Angeles Timesreported that City of Bell officials received salariesthat were among the highest in the nation. These and other reports led to widespread criticism and demands that certain City of Bell officials resign. In mid-September 2010, CAO Rizzo, Ms. Spaccia, and several other City of Bell officials were arrested on criminal charges filed by the Los Angeles County District Attorney's Office.

The criminal charges against Ms. Spaccia are pending and have no relevance to this administrative proceeding.

Ms. Spaccia's Application for CalPERSRetirementBenefits

20. Around February 2010, before the scandal broke, the City ofBell assigned Ms. Spaccia to the City ofMaywood under a mutual-aid agreement to serve as the City ofMaywood's Interim City Manager. Ms. Spaccia served in that capacity for the next seven months.

21. On September 28,2010, Ms. Spaccia signed a disability retirement applicationin which she sought a service retirement pending determination ofthat application. Ms. Spaccia represented that her retirement date was October 1,2010, that she was employed by the City of Bell as Assistant Chief Administrative Officer, and that her highest compensation occurred in the last 12 months she was employed by the City ofBell. Ms. Spaccia's compensation in the year preceding the filing of her application was $320,123, which was $26,677 per month.

CalPERSResponse to the Application for Retirement

22. Ms. Spaccia's retirement applicationwas subject to automatic review by CalPERS because Ms. Spaccia's reported payrate exceeded a $14,500 per year limit and because "member works for the City of Bell." An unsigned detail report related to the application stated that"retirement benefits were placed on hold 'till legal investigation is complete." The detail report also stated, "Do not use payrate in any kind in calc."

23. Joy Fong, a CalPERS employee, calculated Ms. Spaccia's retirement allowance without using any payrate from the City of Bell. A worksheet dated December 14,2010, stated that "full reciprocity" was provided for non-City of Bell public employment. (See Factual Finding 10.) The worksheet stated that Ms. Spaccia was credited with 27.056 years of public service and that her "total unmodified allowance" was $4,141.96 per month. A supervisorreviewed and approved Ms. Fong's calculations.

Barbara Heard's Testimony

24. Barbara Heard has been employed by CalPERS for many years. She currently manages the CalPERS unit responsible for estimating retirement benefits. Ms. Heard attempted to explain how CalPERS calculated Ms. Spaccia's service retirement allowance. She testified that Ms. Spaccia's calculation "was complicated" and that Joy Fong was actually responsible for the calculation she testified about. The calculation did not include the use ofany payrate from the City of Bell but, instead, used a "reciprocal salary" related to Ms. Spaccia's employment with non-City of Bell public entities that Ms. Spaccia had worked for that had contracted with CalPERS.

25. Ms. Heard had no idea why City of Bell payrates were not used. Ms. Heard testified that ifthe City of Bell reported payratewas used to calculate Ms. Spaccia's retirement allowance, the amount ofMs. Spaccia's service retirement allowance would be much higher.

Terrance Rodgers' Testimony

26. Terrance Rodgers is a Staff Services Manager with CalPERS' Compensation Review Unit. He was familiar with Ms. Spaccia's situation. He spent about 30 hours reviewing various materialsbefore providing testimony in this matter. Mr. Rodgers did not make any ofthe determinations at issue. His role was limited to providing expert testimony. 27. Mr. Rodgers reviewed the payroll detail information submitted by the City of Bell that related to Ms. Spaccia's employment. He analyzed that information underGovernment Code section 20636 to determine ifany payment by the City of Bell to Ms. Spaccia involved "compensation earnable," a combination of"payrate" and "special compensation."2

Mr. Rodgers observed that the term "payrate" was defined in Government Code section 20636, subdivision (b)(1), as"the normal monthly rate of pay or base pay ofthe member paid in cash to similarlysituated members ofthe same group or classofemployment for services rendered on a full-time basis during normal working hours" under"publicly available pay schedules." To constitute "payrate" for compensationearnable purposes, there must be othersin the same group or class of employees (the PERL prohibits a class ofone) and payment to the member must be made under a "publically available pay schedule." Mr. Rodgers testified that CalPERS typically assumes that a pay schedule was duly noticed and approved by the governing entity, but that assumption is not conclusive.

Following his document review, Mr. Rodgers concluded that Ms. Spaccia's employment agreements did not constitute a "pay schedule." Why? He believed that the written agreements relatingto Ms. Spaccia's employment (Factual Findings 13 and 16) were not noticed, published or otherwise made available to the public, and that there was no evidence that Ms. Spaccia's contractual payrate was ever approved by the City Council other than as set forth in the original employment agreement. Based on the apparent failure to make Ms. Spaccia's employment agreements available to the public, Mr. Rodgers concluded that Ms. Spaccia's contractual payrate could not qualify as "compensation earnable."

Mr. Rodgers testified that CalPERS also attempted to determine whether other City ofBell employees fell within Ms. Spaccia's work related group or class. Ms. Spacciawas an unrepresented miscellaneousmanagementemployee. There was no duty statement or job description for her position. And, before 2008, the City of Bell had not employed anyone as Assistant Chief Administrative Officer. On this basis Mr. Rogers concluded that Ms. Spacciawas an unrepresented management employee.

Mr. Rodgers reviewed the payrates for other unrepresented management employees, including CAO Rizzo. He summarized their salaries in a spread sheet (Exhibit 33). Mr. Rodgers determined that there was a huge discrepancy between the pay increases CAO Rizzo and Ms. Spaccia's received in 2008 (about a 33 percent salary increase) compared to the pay increases received by most other members within the unrepresented managerial class (there were 2.5 percent increases, with one

2 Ms. Spaccia stipulated that she did not receive "special compensation' from the City of Bell.

8 exception). Mr. Rodgers believed this was a significant finding that demonstrated a lack ofstability and equal treatment within the class. Mr. Rodgerstestified thatwhenever anemployee within a groupor class receives a pay increase that far exceeds the pay increase ofother members of the samegroup or class,that discrepancy calls into question the predictability and stability ofthe member's payrate; a heavilyincreased payrate cannotnot be used to determine "compensation earnable." Inaddition, whenevera member's payrate increases at the discretion or the whim ofjust one person, such as CAO Rizzo, that, too, is a factor that should be considered in determining whether the member's increased payrate should constitute"compensation earnable." Special treatment of one employee within a group or class ofemployees similarly situation and secret employment agreements are not permitted in calculating a member's service retirement allowance accordingto Mr. Rodgers.

Based on the vast discrepancy between Mr. Rizzo and Ms. Spaccia'shuge pay increases and the much smaller pay increases receivedby other unrepresented management group members, Mr. Rodgers concluded that Ms. Spaccia's salarywith the City ofBell should not be considered compensation earnable. In reaching that determination, Mr. Rodgers did not consider that Ms. Spaccia was employed as the City of Maywood's Interim City Manager for seven months before her retirement. His failure to do so did not demonstrate any bias, lack ofexpertise, or result in a different outcome in this proceeding.

Mr. Rodgers believed that CAO Rizzo and Ms. Spaccia were the only City of Bell employees whose final salaries should not be used in calculatingcompensation earnable for CalPERS' retirement purposes. The fact that other City of Bell employees may have received a retirement allowance based upon what they were paid in their last years ofservice with the City ofBell did not establish that Ms. Spaccia was entitled to have her salaries considered as "compensation earnable."

28. Ms. Spaccia was given ample opportunity to obtain and present expert testimony to contradict or impeach the expert testimony provided by Mr. Rodgers. She failed to do so. Mr. Rodgers' testimony and analysis was not contradicted.

Ms. Spaccia's Arguments that her Salary Was Publically Available

29. Ms. Spaccia correctly observes that in calculating the amount ofa service retirement allowance, CalPERS has no standing to determinewhether a public employee's rateofcompensation is appropriate or whether a public employee earned his or her pay. These valid observations miss the primary issue presented in this case -whether Ms. Spaccia received a normal monthly rateof pay that was paid to other similarly situated City of Bell employeesunder a publiclyavailable pay schedule.

30. Ms. Spaccia makes several evidentiary and legal argumentsto support herclaim that she was paid under publicly available employment agreements. Ms. Spaccia notes that the Los Angeles Timesobtained a copy ofher employment agreement three days after filing a public records request for its production, and that Ed Lee, an attorney who served as the City of Bell's City Attorney, testified that Ms. Spaccia's employment contract was available to the public.

31. The production ofpublic employee's contract ofemployment only after a formal request for production has been made under the California Public Records Act (Government Code §§ 6250 through 6276.48) does not render that employment contract "publicly available" within the meaning ofPERL.

The word "available" means "suitable or ready for use" and "readily obtainable," and the word "publicly" means "in a public or open manner or place" and "by public action or consent." The Legislature authorized the use ofa public employee's payrate to calculate a public service retirement allowance only when the payrate is readily available to an interested person without unreasonable difficulty. A payrate buried in an employment agreement or budget that prevents the easy calculation ofthe payrate, or that is privately maintained, or that is not based on a published pay schedule, or that has not been approved in a public manner, or that becomes available only after the service ofa formal public records request, subpoena or otherlegal process is not "publicly available." The statute at issue contemplates that public employee payrates be immediately accessible and available for public review from the employer during normal business hours.

The very fact that the was required to make the public records request to obtain the production ofMs. Spaccia's employment agreement constitutes evidence that Ms. Spaccia's employment agreement was not readily available.

32. Edward Lee was the City Attorney for the City ofBell for 15 years. His service ended in August 2010, shortly after the City ofBell scandal erupted. During his employment as City Attorney, Mr. Bell attended most City Council meetings. He received an agenda packet for the meetings he attended. Mr. Lee's signature appears on Addendum Number Two to Agreement (Factual Finding 16B), but the addendum was not in the agenda packet for the July 2005 City Council meeting. Mr. Lee testified that the City of Bell's five-year budget was not produced in his agenda packet, only the resolution relatingto it. Ms. Spaccia did not establish through Mr. Lee's testimony or otherwise that Addendum Number One to Agreement (Factual Finding 16A) was ever a part ofa City Council agenda packet or that it was otherwise made available to the public before it was approved by theCity Council.3

3 Theoriginal employment agreement (Factual Finding 13) was made available to the public as part ofthe agenda packet for the City Council's June 30,

10 33. Mr. Lee opined that Ms. Spaccia's salary was a "public record" insofar asit was available through the City ofBell's Finance Department; however, Mr. Lee didnot provide factual or analytical detail to support this opinionand his conclusory opinion is certainly not binding in this proceeding.

34. In written closing argument, Ms. Spaccia argues that the regulation on which CalPERS disputes her claim was not in effect before she retired and"Publicly available at that time meant exactly what it says: the employment contractmust be available to the public when the public requests it."

Ms. Spaccia argues that thatthe governing statute does not compel the conclusion CalPERS seeks, that "Regulation 571.5"4 was enacted after the City of Bell scandal erupted, that the regulation was likely enacted in response to the City of Bell scandal, thatbefore the regulation was enacted there was no requirement that an employment agreement be posted on a wall in the city hall or on the Internet to be deemed "publically available,"andthat no evidence suggests that CalPERS ever interpreted "publicly available" in the manner it now asserts.

35. In 2006, CalPERS sponsored Assembly Bill 2244, which amended GovernmentCode section 20636 to include the phrase "pursuantto a publicly available pay schedules." The amendment did not specificallydefine the phrase "publicly available" and no legislation has defined "publicly available" since then.

Ms. Spaccia assertsthat before the regulation was enacted,"publicly available" simply meant"available to the public on request." Ms. Spaccia argues that she hada vested constitutional right in herCalPERS pension, that the 2011 regulation imposedrequirements that did not exist beforeits enactment, and that application of theregulation in this matterwould result in anunconstitutional forfeiture ofherright to her pension.

To support her assertion about CalPERS's interpretation ofthe statute, Ms. Spacciaclaims that CalPERS conducted two auditsofthe City of Bell before Ms. Spaccia retired and that CalPERS did not mention any problems with the public availability ofemployment agreements in thoseaudits. Ms. Spaccia also argues that around a half dozen City of Bell employees have retired with service retirement allowances basedupon their pay in their last year ofemployment with the City ofBell and that CalPERS has not questioned the validity ofthose allowances.

2003, meeting. The City Council formally approved the employment agreement. (Factual Finding 14.) 4 Respondent's Closing Argument erroneously refers to"Regulation 571.5" on pages4,6,7 and 11. The regulation at issue is actually CaliforniaCode of Regulations, title 2, section 570.5, which is referenced in Exhibit A in Respondent's Closing Brief. The mistaken reference is in the nature ofa typographical error and is harmless.

11 36. California Code of Regulations, title 2, section 570.5 became operative August 10,2011. It provides:

(a) For purposes of determining the amount of "compensation earnable" ... payrate shall be limited to the amount listed on a pay schedule that meets all ofthe following requirements:

(1) Has been duly approved and adopted by the employer's governing body in accordance with requirements ofapplicable public meetings laws;

(2) Identifies the position title for every employee position;

(3) Shows the payrate for each identified position, which may be stated as a single amount or as multiple amounts within a range;

(4) Indicates the time base, including, but not limited to, whether the time base is hourly, daily, bi-weekly, monthly, bi-monthly, or annually;

(5) Is posted at the office ofthe employer or immediately accessible and available for public review from the employer during normal business hours or posted on the employer's internet website;

(6) Indicates an effective date and date of any revisions;

(7) Is retained by the employer and available for public inspection for not less than five years; and

(8) Does not reference another document in lieu ofdisclosing the payrate.

(b) Whenever an employer fails to meet the requirements ofsubdivision (a) above, the Board, in its sole discretion, may determine an amount

12 that will be considered to be payrate, taking into consideration all information it deems relevant including, but not limited to, the following:

(1) Documents approved by the employer's governing body in accordance with requirementsof public meetings laws and maintained by the employer;

(2) Last payrate listed on a pay schedule that conforms to the requirements of subdivision (a) with the same employer for the position at issue;

(3) Last payrate for the member that is listed on a pay schedule that conforms with the requirements ofsubdivision (a) with the same employer for a different position;

(4) Last payrate for the member in a position that was held by the member and that is listed on a pay schedule that conforms with the requirements ofsubdivision (a) ofa former CalPERS employer.

37. The Notice of Proposed Regulatory Action related to section 570.5 stated that the regulation "will ensure consistency between CalPERS employers as well as enhance disclosure and transparency of public employee compensation... This proposed regulatory action clarifies and makes specific requirements for publicly available pay schedule and labor policy or agreement..."

The informative digest portion ofthe notice stated in part:

Generally the law requires that a member's payrate be shown on a publicly available pay schedule, that special compensation be limited to items included in a labor policy or agreement, and that all records establishing and documenting payrate and special compensation be available for public scrutiny. Employers have not uniformly adhered to these requirements

CalPERS's Arguments

13 38. CalPERS claims that Regulation 570.5 appliesin this proceedingeven though it became operative after Ms. Spaccia filed her retirement applicationbecause the regulation simply "clarified" existing law. Applying this regulation,CalPERS assertsthat Ms. Spaccia's payrateswith the City of Bell were not "publicly available" under Regulation570.5 because they were not approved and adopted by the City of Bell in accordance with requirements ofapplicable public meetings laws (except for the originalemployment agreement) and because her payrateswere not posted at her employer's office, were not immediately accessible and available for public review from the employer during normal business hour,and/orwere not posted on the employer's Internet website.

CalPERS asserts that the same result on the "publicly available" issue must be reached without reference to Regulation 570.5 because the legislative history relating to pension legislation demonstrates an intent to prevent manipulation ofcompensation earnable "by requiring a member's pension be both readily available for public inspection and review, and that it beestablished through a publicly noticed process."5

The 2006 CalPERS audit stated that the City of Bell accurately reported members earnings "included in our sample, except for the instances noted in the report." One problem observed in that reportwas the 47.33 percent increase in the CAO's salary which was identified as at "risk" because the City paid the salary without the existence of"public salary information." There was nothing sufficiently specific in the 2006 CalPERS audit to permit Ms. Spaccia to conclude thatthe audit covered her salary or that her salary had been determined to be publicly available.

The 2010 CalPERS audit occurred before Regulation 571.5 was enacted. In that audit, the auditors found a "widespread lack ofinformation deemed necessary to determine the correctness ofretirement benefits, reportable compensation, and enrollment in the retirement system" and "[p]ayrates reported to CalPERS failed to qualifyascompensation earnable pursuant to multiple provisions oflaw." Auditors

5 Senate Bill 53 was introduced in 1992 and was enacted in 1993. SB 53 was designed to curb"spiking," the intentional inflation ofa public employee's final compensation, and to preventunfunded pension fund liabilities. SB 53 defined "compensation earnable"in terms ofnormal payrate, rateofpay, or base pay so that payrates would be "stable and predictable among all members ofa groupor class" and "publicallynoticed by the governing body." The legislation was intendedto restrict an employer's ability to spike pensionbenefits for preferredemployees and to resultin the equal treatment of public employees. (Senate File History Re: SB 53)

The reference to "publicly available pay schedules" set forth in Government Code section 20636, subdivision (b)(1), was added by the Legislature in 2006. Legislative historyconfirms that"the change was a matterofclarification." {Prentice v. Board ofAdmin., California Public Employees' Retirement System (2007) 157 Cal.App.4th 983,990, fn. 4.)

14 found that the documents produced to substantiatecompensation earnablewere either unavailable or were received in a fashion that required a detailed analysis to yield basicrelevant information. Auditors found thatwith respectto the employment contracts ofMs. Spaccia and CAO Rizzo, there was no evidence that the agreements were approved through a public process or even that Ms. Spaccia's agreement had been approved by City Council.

To further support its interpretation, CalPERS asked that official notice be taken ofthe Board ofAdministration's decision in In Re RandyAdams, OAH No. 2012030095, CalPERS Agency No. 20110778, which states:

Using a broad interpretation of"pay schedule" based upon the inclusion ofa salary disclosed only in a budget has the vice of permitting an agency to provide additional compensation to a particular individual without making the compensation available to other similarly situated employees. And, a written employment agreement with an individual employee should not be used to establish that employee's "compensation earnable" because the employment agreement is not a labor policy or agreement within the meaning ofan existing regulation and would not limit on the compensation a local agency could provide to an individual employee by way ofindividual agreements for retirement purposes. {Prentice v. Board ofAdmin., California Public Employees' Retirement System (2007) 157 Cal.App.4th 983,994-995.)6

The City ofBell fs Arguments

39. The City ofBell argues that Ms. Spaccia's employment signed by CAO Rizzo signed are void because under Resolution No. 2006-42, CAO Rizzo's authority to contract did not extent to "any written contract for services rendered by any person in the employ ofthe City as a regularsalary." To the extent that the argument establishes that there was no public disclosureof the terms and conditions ofthe agreements before they were signed, that argument has relevance. The employment agreements were, in essence, privateagreements between CAO Rizzo and Ms.

6 In a response to the request for official notice that wasattached to Ms. Spaccia's closing argument, Ms. Spaccia argued that her situation was different from ChiefAdams's situation because CAO Rizzo possessed authority to approve her employment contract without further approval from City Council because she was not a department head. This distinction is not supported under the relevant statutes and City resolutions.

15 Spaccia that were not formally approved by the City Council. Those agreements cannot be used to establish Ms. Spaccia's payrateunder the PERL

The City of Bell argues that Addenda One and Addenda Two were not publicly available pay schedules because the employment agreements were not included in any agenda packet provided to the public and because notice ofthe consideration ofthose agreementswas not providedin any agendabefore the City Council approved the contracts. On that basis, the City of Bell argues that the employment agreements set forth in Addenda One and Addenda Two were never publicly available. The evidence supports this argument.

The City of Bell argues that the original agreement in 2003 was publicly available because it was included in the City Council agenda packet and it was on the City Council's agenda for consideration before it was formally adopted. The original agreement placed Ms. Spaccia in a group or class with other management personnel. On this basis, the City ofBell argues that Ms. Spaccia's $8,526 monthly salary should be deemed to be her payrate for determining final compensation.

To support the argument that the original employment agreement should be used to calculate Ms. Spaccia's service retirement, the City ofBell argues that the City of Bell (and all other municipalities in California) are subject to the Brown Act (Government Code section 54950 et seq.), that the Brown Act promotes transparency in the conducting ofcity business, and that properlyenacted legislative decisions of an elected body should be upheld when there is no violation ofthe Brown Act. The City of Bell observes that many municipalities do not have formal pay schedules for senior city management and these municipalities rely on properly noticed and duly approved employment contracts to establish payrates. The City of Bell argues that this procedure should be deemed to satisfy the publicly available schedule requirement in narrow instances where a senior management employee's employment contract was the only pay schedule within the jurisdiction and the final compensation to be determined was earned before Regulation 570.5 became operative.

Factual Conclusions on "Publicly Available"

40. Ms. Spaccia was employed under an agreement for employment dated July 1,2003. Ms. Spaccia's original employment agreement was made available to the public as partofthe agenda packet for the June 30,2003, City Council meeting. The City Council formally approved the agreement at that meeting.

It is concluded that for purposes ofdetermining Ms. Spaccia's compensation earnable under PERL, Ms. Spaccia's payrate of$8,526 per month - as set forth in the July 1,2003, employment agreement - should be used. The employment agreement was duly approved and adopted by the City of Bell in accordance with requirements ofapplicable public meetings laws; the agreement identified her position title; the agreement included her payrate; the agreement did require reference to any other

16 document to calculate her payrate; the agreement was available for public review before the City Council meeting; the City Council formally approved the agreement; and the City of Bell retained the agreement. 41. It is concluded that for purposes ofdetermining Ms. Spaccia's compensation earnable under PERL, Ms. Spaccia's payrates contained in those documents identified in Factual Finding 16 (Addendum Number One to Agreement for Employment dated July 1,2004; Addendum Number Two to Agreement for Employment dated July 1,2005; Addendum Number Three to Agreement for Employment dated July 1,2006; and Agreement for Employment dated June 30, 2008) may not be used. The employment agreements were not included in any agenda packet provided to the public before the City Council approved the contracts. Followingthe signing ofthose agreements, the agreementswere not posted at the office ofthe employer, were not posted on the employer's Internet website, and were not immediately accessible and available for public review from the employer. A formal request for production was required to obtain a review of the employment agreements. The documents identified in Factual Finding 16 were not publicly available within the meaning ofGovernment Code section 20636, subdivision (b)(1).

On and after the terminationofthe original employment agreement, Ms. Spaccia's payrate increases greatly exceeded the payrateincreases received by other City of Bell unrepresented management employees other than CAO Rizzo. It is determined that Ms. Spaccia was a prefened employee whose compensation increases were not available to other similarly situated employees.

Applicant/Respondent's Constitutional andEquitable Arguments on thePublicly Available Issue

42. Ms. Spaccia contends that the and California's constitutionsand longstanding principals ofequity require that Ms. Spaccia's most, recent pay from the City of Bell be used to calculate her service retirement allowance. She argues that her salary in the last seven years ofher employment with the City of Bell cannot be ignored, that her employment agreements were available to members ofthe publicin a reasonably prompt manner following formal request, that the City of Bell was responsible for any failure to publish heragreements, that she was unfairly singled out by CalPERS after the City of Bell scandal erupted because she held a position ofauthority, that CalPERS' interpretation of"publicly available" was unprecedented, and that CalPERS neverspecifically advised Ms. Spaccia or the City ofBell thatherearnings were not suitable for the purpose ofcalculating a retirement allowance.

43. The requirements set forth in Government Code section 20636 are constitutional. CalPERS did not engage in discriminatory enforcement in reviewing Ms. Spaccia's situation or by applying Government Code section 20636. In this administrative proceeding, Ms. Spaccia and theCity of Bell successfully challenged

17 some ofCalPERS staffs determinations through the presentation ofevidence and argument.

44. CalPERS is not estopped to apply the "publicly available" provision set forth in Government Code section 20636, subdivision (b)(1), in this matter. CalPERS never told Ms. Spaccia or the City of Bell that her earnings were paid pursuant to a publicly available pay schedule. To the contrary, the 2010 CalPERS audit determined that with respect to Ms. Spaccia and CAO Rizzo's employment contracts, there was no evidence that the agreements were approved through a public process or even that Ms. Spaccia's agreement had been approved by City Council.

ThePurchase ofAdditionalRetirement Service Credit (Air Time)

45. Before May 15,2004, Ms. Spaccia visited Sacramento to confer with CalPERS' staff. She met with Nancy Veitenhaus, a member ofCalPERS' Benefit Services Division, to discuss the possibility ofthe City of Bell purchasing additional retirement service credit for certain employees, including herself. Ms. Veitenhaus told Ms. Spaccia that there would be no problem ifthe City of Bell directly purchased airtime for certain employees. Ms. Veitenhaus did not, according to Ms. Spaccia, warn her that a direct purchasemight be improperor that only an employee could pay for air time. Ms. Spaccia reasonably relied on what she was told. CalPERS could have called Ms. Veitenhaus to testify, but did not do so. Ms. Spaccia's testimony on this issue was credible and uncontroverted.

46. Based on what she was told, Ms. Spaccia provided CalPERS with applications for the purchaseofairtime for 12 employees, 11 ofwhom were in executive or administrative management positions, with the remaining air time being purchased as partofa settlement related to a City of Bell employee's sexual harassment lawsuit.

47. On May 15,2004, Ms. Spaccia signed a Request for Service Credit Cost Information Additional Retirement Service Credit (ARSC) that was filed with CalPERS. The request included her name and her employer's name, and stated that she had attached a copy ofthe estimate for the purchase. She checked a "No" box to indicate that she did not anticipate purchasing the ARSC with a rollover or plan-to- plantransfer of pre-tax funds. In that application, Ms. Spaccia indicated that her retirement formula was 2 percent at age 55, that she had 15.5 years of service, and that her monthly payrate was $8,525.83.7

In response to her request, CalPERS advised Ms. Spaccia that the lump sum cost to purchase five additional years of servicecredit(air time) was $71,085.39,

7 The monthly payrate Ms. Spaccia provided was consistent with her earnings under the Agreement for Employment dated July 1,2003.

18 which would result in an estimated increase in her monthly pension in the amount of $598.39 if Ms. Spaccia were to retire at age 50.

On August 31,2004, Ms. Spaccia signed an Election to Purchase ARSC. Ms. Spaccia checked a box for "lump sum payment option" and indicated on the form in clear handwriting that "Payment from City ofBell Surplus Account." A check in the amount of$71,085.39 was enclosed with the application.

48. CalPERS cashed the City ofBell's check for the purchase ofMs. Spaccia's air time as well as City of Bell checks written for the other 11 employees. CalPERS credited Ms. Spaccia and the other employees with five years ofadditional service credit.

49. CalPERS did not notify Ms. Spaccia ofits claim that the City ofBell's direct purchase of five years ofair time for her was improper until June 2012, approximately eight years later and after Ms. Spaccia retired,which made it impossible for her at that time to seek such airtime on her own.

CalPERS'Claim

50. CalPERS asserts that Government Code section 20909 permits only "a member" to purchase air time and that the purchase ofairtime by anyone other than "a member" should be disallowed.

51. Government Code section 20909 provides in part:

(a) A member who has atleast five years ofcreditedstate service, may elect, by written notice filed with the board, to make contributions pursuant to this section and receive not less than one year, nor more than five years, in one-year increments, ofadditional retirement service credit in the retirement system.

(b) A member may elect to receive this additional retirement service credit at any time prior to retirement by making the contributions as specified in Sections 21050 and 21052. A member may not elect additional retirement service credit under this section more than

once

52. By its own terms, the statute requires only that "a member" file the required notice and make the requiredcontribution. Nothing in the statute prohibits an employer from making the contribution on an employee's behalf. No direct appellateauthority was provided to support CalPERS' assertion on that issue. Nor

19 was any legislative history related to the enactment ofGovernment Code section 20909 offered to support CalPERS' assertion.

Factual Conclusions on Estoppel Related to Air Time

53. Government Code section 20909 does not expressly prohibita public employer from purchasing air time on behalf ofan employee. In fact, it is not uncommon for a public employer to do so in the settlement oflitigation with a public employee, as was demonstrated in this matter.

Ms. Spaccia established that she advised CalPERS of the fact that the City of Bell sought to purchaseair time on behalf ofcertain employees, including herself; that a responsibleCalPERS employee told Ms. Spaccia that such a purchase was permissibleand would be honoredby CalPERS; that the CalPERS employee knew that her representations would be relied on and, in fact, air time was directly purchased by the City of Bell for certain employees; that Ms. Spaccia had at least five years ofcredited state service when she elected by written notice filed with CalPERS to make a contribution under Government Code section 20909; and that in accordance with what she was told by a responsible CalPERSemployee, Ms. Spaccia arranged for the City of Bell to make the contribution on her behalf. There was nothing sneaky or underhanded in the transaction. Payment by the City ofBell on Ms. Spaccia's behalf was not expressly prohibited by the statute. Ms. Spaccia, who is now retired, is no longer eligible to fund the purchase of air time.

It would be unfair and unjust under the circumstances to disallow the City of Bell's purchase on Ms. Spaccia's behalfoffive years ofair time under all the circumstances.

LEGAL CONCLUSIONS

The Constitutional Mandate

1. Article XVI, section 17 of the California Constitution provides as follows:

The assets ofa public pension or retirement system are trust funds and shall be held for the exclusive purpose of providing benefits to participants ... and defraying reasonable expense ofadministering the system.

Administration ofthe Retirement Fund

20 2. The CalPERS retirement fund was established as a trust, to be administered in accordance with the provisionsofthe Public Employees Retirement Law solely for the benefit ofthe participants. (Gov. Code, § 20170.) Management andcontrol ofthe retirement system is vested in the Board ofAdministration. (Gov. Code, § 20123). The Board ofAdministration has the exclusive control ofthe administration and investment ofthe retirement fund. (Gov. Code, § 20171.) Burden and Standard ofProof

3. Government Code section 20128 providesin part:

... [T]he board may require a member... to provide information it deems necessary to determine this system's liability with respect to, and an individual's entitlement to, benefits prescribed by this part.

4. Applicant has the initial burden to establish that she was entitled to a CalPERS serviceretirement andthe amount ofthe retirement allowance. (Evid. Code, § 500; Evid. Code, § 550.) The standard ofproofis a"preponderance ofthe evidence." (Evid. Code, § 115.)

5. Pension legislation must be liberally construed, resolving all ambiguitiesin favor ofthe applicant. However, liberal construction cannot be used as anevidentiary device. It does not relieve a party ofmeetingthe burden ofproofby a preponderance ofthe evidence. {Glover v. BoardofRetirement (1989) 214 Cal.App.3d 1327,1332.)

6. Once Ms. Spaccia introduced prima facie evidence sufficient to establish that she is entitled to a service retirement in some amount, the burden shifted to CalPERS and the City ofBell to refute the evidence she offered.

Determination ofService Benefits

1. A CalPERS member's retirement benefit is based upon the factors of retirement age,length ofservice,and final compensation. Compensation is not simply the cash remuneration received, but is exactingly defined. The scopeof compensation is critical to settingthe amount ofretirement contributions. Statutory definitions delineating the scope of compensation cannot be qualified by bargaining agreements. Nor can the Board ofAdministration characterize contributions as compensation or not compensation under the PERL, as those determinations are for the Legislature. {Pomona Police Officers'Assn. v. City ofPomona(1997) 58 Cal.App4th 578,584-585.)

Compensation, Compensation Earnable, andPayrate

8. Government Code section 20630 provides in part:

21 (a) As used in this part, "compensation" means the remuneration paid out of funds controlled by the employer in payment for the member's services performed during normal working hours or for time during which the member is excused from work ... (b) When compensation is reported to the board, the employer shall identify the pay period in which the compensation was earned regardless ofwhen reported or paid. Compensation shall be reported ... and shall not exceed compensation earnable, as defined in Section 20636.

9. Government Code section 20636 provides in part:

(a) "Compensation earnable"by a member means the payrate and special compensation ofthe member, as defined by subdivisions (b), (c), and (g), and as limited by Section 21752.5.

(b)(1) "Payrate" means the normal monthly rate of pay or base pay ofthe member paid in cash to similarly situated members ofthe same group or class ofemployment for services rendered on a full-time basis during normal working hours, pursuant to publicly available pay schedules. "Payrate," for a member who is not in a group or class, means the monthly rate of pay or base pay ofthe member, paid in cash and pursuant to publicly available pay schedules, for services rendered on a full- time basis during normal working hours

Similarly Situated Members

10. A pay increase must be partofa publicly available pay schedule in order to qualify as "compensation earnable." Under PERL, the limitations on salary increases for purposes ofestablishing "compensation earnable" are designed to require that retirement benefits are based on the salaries paid to similarly situated employees. PERS acts properly in looking at the published salary ranges ratherthan an exceptional arrangement between a city and a city employee even though that arrangement may be reflected in the city's budget documents. {Prentice v. Board of Admin., CaliforniaPublic Employees'RetirementSystem (2007) 157 Cal.App.4th 983,993-994 [an increase of 10.49% in city general manager's salary within three years ofretirement that was not partofa publicly available pay schedule and was not part of payrate for similarly situated employees could not be considered in calculating manager's retirement salary].)

22 11. An employee's pension will not necessarily reflect his total personal compensation because payrate for retirement purposes is measured by the amounts provided by the employer to similarlysituated employees. {Molina v. Board of Admin., California Public Employees'RetirementSystem (2011) 200 Cal.App.4th 53, 65-66. 12. Under Government Code section 20636, subdivision (b)(1), no employment agreement other than Ms. Spaccia's original employment agreement with the City ofBell can be used to calculate Ms. Spaccia's service retirement allowance because her earnings under those subsequent agreements cannot be measured by amounts provided to similarly situated employees.

Publicly Available

13. Under well-established rules of statutory construction, courts must ascertain the intent of the draftersto effectuate the purpose ofthe law. Because statutory language is generally the most reliable indicator oflegislative intent, the words ofa statute are first examined, giving them their usual and ordinary meaning andconstruing them in context. When statutory language is clear and unambiguous, there is no need for construction and courts should not indulge in it. Thus, ifthe language is unambiguous, the plain meaning governs and it is unnecessary to resort to extrinsic sourcesto determinelegislative intent. {Bernard v. City ofOakland(2012) 202 Cal.App.4th 1553,1560-1561.)

14. The word "available" means "suitable or ready for use" and "readily obtainable." {The Random House Dictionary ofthe English Language (2nd Ed.), p. 142.) The word "publicly" modifies "available." "Publicly" means "in a publicor open manner or place" and "in the name ofthe community" and "by public action or consent." {The Random House Dictionary ofthe English Language (2nd Ed.), p. 1563.)

15. The Legislature obviously intended that a public employee's "payrate" be readily available to an interested person without unreasonable difficulty. This concept does not apply in a situation where a public employee's payrate is buried in an agreement or budget that prevents its easy calculation, or is not based on a published pay schedule, or has not been approved by a governing body in accordance withrequirements ofapplicable public meeting laws, orcannot be obtained except through a formal public records request, subpoena, or otherlegal process. (See the discussion in Factual Findings 30,40 and41.)

16. Under Government Code section 20636, subdivision(b)(1), no employment agreementother than the original employment agreement can be used for the purpose ofcalculating Ms. Spaccia's service retirement allowance because those subsequent agreements were not publicly available within the meaning ofthe statute.

23 RegulatoryAuthority

17. California Code of Regulations, section 570.5 became operative on August 10,2011. That regulation is set forth at Factual Finding 36. Under that regulation, the payrate in Ms. Spaccia's original employment agreement with the City ofBell meets the exception expressed in section 570.5, subdivision (b). The other employment agreements do not qualify as being "publicly available" under the regulatoryexception because they were not approved in accordance with requirementsof public meeting laws and were not publicly available.

Estoppel

18. Equitable estoppel may be assertedagainst the government in some circumstances. The requisite elements for equitable estoppel against a private party are: (1) the partyto be estopped was apprised of the facts; (2) the party to be estopped intended by conduct to induce reliance by the other party, or acted so as to cause the other party reasonably to believe reliancewas intended; (3) the party asserting estoppel was ignorant of the facts; and (4) the party asserting estoppel suffered injury in relianceon the conduct. The government may be bound by an equitable estoppel in the same manner as a private party when the elements requisite to such an estoppel are present and, in the considered view ofa court ofequity, the injustice which would result from a failure to uphold an estoppel is of sufficient dimension to justify any effect upon public interest or policy which would result from the raising ofan estoppel. {Medina v. Board ofRetirement, LosAngeles CountyEmployeesRetirement Assn. (2003) 112 Cal.App.4th 864,868-869.)

19. Ms. Spaccia.did not prove the elements necessary to establish an estoppel against CalPERS on the issues related to the determination ofher compensation earnable and payrate. (Factual Finding 44.)

20. Ms. Spaccia proved all ofthe elements necessary to establish an estoppel against CalPERS on the issue ofthe City ofBell's purchase offive years of airtime on her behalf. It would be manifestly unjust to not permit her to retain such air time under the circumstances. (Factual Finding 53.)

Cause Exists to Conclude Ms. Spaccia's Payrate Was $8,526 Per Month

21. Cause exists to conclude thatCalPERS did not properlycalculate Ms. Spaccia's compensation earnable under Government Code section 60636 in the amount of$7,607 per month, and that the proper calculation ofher compensation earnable under Government Code section 60636 is $8,526 per month.

22. Cause exists to concludethat CalPERS improperly disallowed the City ofBell's purchase offive years ofairtime for Ms. Spaccia, and that Ms. Spaccia

24 should receive the five years ofadditional retirement service credit that was improperly disallowed.

ORDERS

CalPERS shall recalculate Ms. Spaccia's compensation earnable based upon her earnings reflected in her agreement for employment with the City of Bell dated July 1,2003.

CalPERS shall include in the recalculation ofMs. Spaccia's service retirement allowance the five yearsofadditional retirement service credit that was previously disallowed.

Dated: February 26,2013

ji&^&t-^ les Ahler Administrative Law Judge Office ofAdministrative Hearings

25